How Should You Prepare For Health Care Costs in Retirement?

Healthcare expenses in retirement can be daunting. This cost can be concerning for pre retirees as well as those who have already left the workforce. The reality is that these expenses will require a large amount of your retirement savings. Therefore, it is important to sufficiently prepare for these costs. This is especially true since, as you get older, health care costs increase as well as your health care needs. 

How Much Of Your Retirement Savings Will Need To Be Allocated For Healthcare Costs? 

A study by the Fidelity Retiree Health Care Cost Estimate found that a 65-year-old couple retiring in 2021 will pay an average of $300,000 in health care expenses over their retirement. This cost includes Medicare, deductibles, copayments, and coverage. However, ultimately, this cost will depend on the status of your health, your location, and the age you retire. 

How Should You Prepare For Health Care Costs in Retirement?

It is highly important to save for health care. Health care has a higher rate of inflation than every other major expense category. Therefore, the price will only continue to increase in the future. This combined with the increasing medical attention a person requires as they grow older, means that people should take serious preparations.

How Should You Prepare For Health Care Costs in Retirement?

How To Prepare?

In order to minimize health care expenditure, it is important to attempt to live a healthier lifestyle. Remaining active, following a nutritious diet, among other preventive care can help lower future health care costs. However, living a healthy lifestyle is not enough as people who live longer also require a greater amount of retirement savings. 

Besides potentially saving money from lifestyle changes, there are various services that can help with saving up and paying for health care. 

Health Savings Accounts (HSAs)e

A great way to save for health care costs in retirement is with the use of a health savings account. These savings accounts help pay for health-related expenses such as deductibles, coinsurance, copayments, and other expenses to minimize your total health care costs. 

HSAs are similar to IRAs in that you can invest in stocks, bonds, etc. The money goes into the account is tax deductible and the money is able to grow tax-free. 

It is important to keep in mind that HSAs have certain requirements that must be met.  For example, you must have a high-deductible plan which must be HSA qualified as well as no other health insurance. 

These accounts have great benefits including no federal income tax, no expiration date on funds, and usage for spouses and dependents. 

Annuity ‘Doublers’

Besides preparing for ongoing health care costs, it is also important to think about potential long term care. Annuities can act as income riders for retirement. They are contracts with insurance companies where the investor lends the company a certain amount of money. A long term care rider can also be optionally bought with the annuity. The company can then give the beneficiary double payments in order to help pay for long term care. However, in order to activate the benefits, the annuitant needs to be unable to perform two of six activities of daily living: eating, bathing, dressing, transferring, toileting, and continence.

For example, a person makes a $100,000 investment in an annuity. If something happens to that person and he or she is determined to be chronically ill, which includes not being able to do two of the six activities, then they will be able to access $200,000 to $300,000 of benefits. 

A great advantage of long term coverage is that if you do not need the full long term coverage, the principle goes back to the family. Also, the interest earned when you withdraw from the annuity is income tax free. 

However, before buying an annuity with a long term care rider it is important to be clear on what exactly they cover. Some annuities with a doubler might only cover nursing home care but not home care. 


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Medicare is a federal government program for ages 65 and older. There are various parts of Medicare and each cover a category of health care expenses. 

The basic Medicare plan includes Part A and Part B. Part A is hospital coverage which covers inpatient hospital, skilled nursing, home health, blood, and hospice. Part B is the outpatient medical coverage which includes doctor visits, lab work, physical therapy, ambulance, surgeries, and chemotherapy. 

As well as the basic plan,  individuals can also purchase Part C and D. Part C, which is called Medicare Advantage, is an optional form of coverage. With Part C, individuals can get Part A and B benefits but from a private company. Many individuals choose the Medicare Advantage Plan to fill the gaps of coverage. Part D covers prescription drugs. This part is also voluntary and covers retail prescription drugs. 

The Medigap Plan, or medical supplement (Plan F), is also an option to fill in the gaps in your Medicare coverage. Medicare pays first and then sends the rest of your bill to your Medigap company. 

The difference between Medigap and Medicare Advantage plans is that Medigap has higher premiums and less copays. 

AnnuityEdu’s Conclusion

The financial tools you choose to compose a plan for your health care expenditures will vary on your financial and health status. While the costs may seem overwhelming, remember it is only a preview of added costs over the course of 30 years. As long as you assess your situation and do your research, you will be able to make the best plan for you. You may also want to ask for expert help when making these decisions. 

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